Case No. 137 of In the matter of

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel / 65/ 69 Fax Website: Case No. 137 of 2011 In the matter of Approval of Multi Year Tariff Business Plan of Maharashtra State Electricity Transmission Company Limited (MSETCL) for the Second Control Period from to Shri. V.P. Raja, Chairman Shri. Vijay L. Sonavane, Member Maharashtra State Electricity Transmission Company Limited...Petitioner ORDER Date: 11 January, 2013 Upon directions from the Maharashtra Electricity Regulatory Commission (the Commission or MERC), Maharashtra State Electricity Transmission Company Limited (MSETCL), submitted its application for approval of the Multi Year Tariff (MYT) business plan for its transmission business for the second control period from to The Commission, in its first amendment notified on 21 October, 2011 to Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, has specified that for the generating company or transmission licensee or distribution licensee for whom there is an Order on exemption under Regulation 4.1 of MERC (MYT) Regulations, 2011 shall file annual Petitions for approval of ARR and Tariff during the period of exemption, in accordance with the MERC (Terms and Conditions of Tariff) Regulations, The Commission issued an Order dated 3 November, 2011 in Case No. 62 of 2011, wherein the Commission invoked the proviso to Regulation 4.1 of MERC (MYT) Regulations, 2011

2 Case No. 137 of 2011 MERC Order for MSETCL Business Plan for to and exempted the determination of Tariff of MSETCL under the Multi-Year Tariff framework till 31 March, 2013 (i.e., for a period of 2 years) and allowed MSETCL to submit its Petition for approval of ARR for and , as per MERC (Terms and Conditions of Tariff) Regulations, Thus, for and , MERC (Terms and Conditions of Tariff) Regulations, 2005 prevail, while for the period to , the MERC (MYT) Regulations, 2011 shall be applicable for MSETCL. In view of the above, the Commission, in exercise of the powers vested in it under Section 61 and Section 62 of the Electricity Act, 2003 (EA, 2003) and all other powers enabling it in this behalf, and after taking into consideration all the submissions made by MSETCL, issues raised during the public hearing, and all other relevant material, approves the MYT business plan for MSETCL for the second control period from to as under. MERC, Mumbai Page 2 of 119

3 Case No. 137 of 2011 Order - MSETCL business plan for to Table of Contents 1. BACKGROUND AND BRIEF HISTORY Background Evolution of Regulatory regime for transmission pricing MERC (MYT) Regulations, Petition for business plan approval, admission of the business plan Petition and public process Organisation of the Order OBJECTIONS RECEIVED, MSETCL S RESPONSE AND COMMISSION S RULING Clarity regarding MSEB transfer scheme Long term transmission planning Operational cost Capital expenditure and capitalisation Competition Management risks Incomplete Regulatory procedure Regulatory fees and charges Outsourcing of installation work Increase in revenue requirement O&M expenses A&G expense Transmission constraints MSETCL s JV with M/s Sterlite Compensation to the land owners Substandard material quality Violation of social and environmental laws Failure to maintain safety standards Higher legal expenses Transmission Tariff Statutory audit of MSETCL Business plan updation MERC, Mumbai Page 3 of 119

4 Case No. 137 of 2011 Order - MSETCL business plan for to Peak demand of electricity Optimistic and pessimistic scenarios Depreciation Income tax Optimal employee mix SALIENT FEATURES OF THE PETITION Applicability of this Order for to Premise for the MYT business plan Petition Summary of the MYT business plan Petition Key Assumptions made by MSETCL Difficulties under MERC (MYT) Regulations, 2011 as highlighted by MSETCL BUSINESS PLAN COMPONENTS Operational performance plan Strategic plan Human resource development plan Environmental policy and corporate social responsibility (CSR) initiatives plan Market assessment Operational plan APPROVAL OF PROJECTION OF ARR COMPONENTS UNDER MYT BUSINESS PLAN Background Operation & maintenance expenses Capital expenditure and capitalisation Depreciation Interest on long term loans Interest on working capital Contribution to contingency reserves Return on equity (RoE) Income tax Non-Tariff income Income from wheeling charges received from Goa State MERC, Mumbai Page 4 of 119

5 Case No. 137 of 2011 Order - MSETCL business plan for to Approval of business plan scenario APPROVAL OF PERFORMANCE TARGETS FOR THE CONTROL PERIOD Background Transmission availability Transmission loss Compliance of other performance parameters standards Preparedness and compatibility for evolutionary POC based transmission pricing methodology DIRECTIONS FOR FILING MYT PETITION OVER THE CONTROL PERIOD Through this business plan Order, MSETCL is hereby directed to comply with the following directives while filing the MYT Petition for the second control period: Appendix Appendix MERC, Mumbai Page 5 of 119

6 Case No. 137 of 2011 Order - MSETCL business plan for to List of Tables Table 1: Fatal accidents occurred due to electric shock as submitted by MSETCL Table 2: Capital investment plan for to as submitted by MSETCL Table 3: ARR Projections as submitted by MSETCL Table 4: Scenario analysis (without past gap recovery) as submitted by MSETCL...50 Table 5: Capitalisation of MSETCL Table 6: Head wise budget allocation for capital investment schemes for to as submitted by MSETCL Table 7: Status wise approval for capital investment schemes for to as submitted by MSETCL Table 8: Head wise budget allocation for capitalisation for to as submitted by MSETCL Table 9: Status wise approval for capitalisation for to as submitted by MSETCL Table 10: Capitalisation considered for MYT business plan approval Table 11: Funding details for capital expenditure requirements for to as submitted by MSETCL* Table 12: Expected loan drawl as submitted by MSETCL Table 13: Inflation factor considered by MSETCL Table 14: Net O&M expenses submitted by MSETCL for and Table 15: O&M expenses submitted by MSETCL based on norms in MERC (MYT) Regulations, 2011 for to Table 16: Total O&M expenses for the second control period as submitted by MSETCL Table 17: O&M expenses approved for the Control Period Table 18: Revised head wise budget allocation for capital expenditure from to as submitted by MSETCL Table 19: Revised head wise budget allocation for capitalisation for to as submitted by MSETCL Table 20: Head wise approved capitalisation from to Table 21: Approval status wise approved capitalisation from to Table 22: Depreciation as submitted by MSETCL Table 23: Depreciation as approved by the Commission Table 24: Interest and finance charges as submitted by MSETCL Table 25: Weighted average interest rate considered by the Commission Table 26: Interest on long term loans as estimated by the Commission Table 27: Interest on working capital as submitted by MSETCL Table 28: Interest on working capital as estimated by the Commission Table 29: Contribution to contingency reserves as submitted by MSETCL Table 30: Contribution to contingency reserves as estimated by the Commission Table 31: Return on equity as submitted by MSETCL Table 32: Return on equity as estimated by the Commission Table 33: Income Tax expenses as submitted by MSETCL MERC, Mumbai Page 6 of 119

7 Case No. 137 of 2011 Order - MSETCL business plan for to Table 34: Income Tax approved by the Commission Table 35: Non Tariff income as submitted by MSETCL Table 36: Non-Tariff Income as estimated by the Commission Table 37: Income from wheeling charges received from Goa State as submitted by MSETCL Table 38: Realistic scenario Table 39: Optimistic scenario Table 40: Pessimistic scenario Table 41: Computation of Aggregate Revenue Requirement of MSETCL based on business plan scenario considered by the Commission MERC, Mumbai Page 7 of 119

8 Case No. 137 of 2011 Order - MSETCL business plan for to List of Abbreviations A&G Administrative and General AAD Advance Against Depreciation ADB Asian Development Bank APML - T Adani Power Maharashtra Limited - Transmission Business APR Annual Performance Review ARR Aggregate Revenue Requirement ATE Appellate Tribunal for Electricity BCU Bay Controller Unit BEST Brihanmumbai Electricity Supply & Transport BOM Bank of Maharashtra CA Chartered Accountant CERC Central Electricity Regulatory Commission Commission/ MERC Maharashtra Electricity Regulatory Commission Capex Capital Expenditure CCTV Closed Circuit Television CPP Captive Power Plant CSR Corporate Social Responsibility CTC Corporate Training Centre DPR Detailed Project Report EA, 2003 Electricity Act, 2003 EHV Extra High Voltage EPC Engineering Procurement and Construction EPS Economic Power Survey FOLD Forum of Load Dispatchers FOR Forum of Regulators FQP Field Quality Plan GFA Gross Fixed Assets GIS Gas Insulated Substation GoI Government of India GoM Government of Maharashtra MERC, Mumbai Page 8 of 119

9 Case No. 137 of 2011 Order - MSETCL business plan for to G-Sec HR HVAC HVDC ICWAI IEEE IFC InSTS IPP ISO ISTS JICA JPTL JV kv SLDC LES LIC LILO MCGM MEGPTCL MoM MoP MSEB MSETCL MSLDC MVA MYT O&M OPGW PAT Government securities Human Resource High Voltage Alternate Current High Voltage Direct Current The Institute of Cost Accountants of India Institute of Electrical and Electronics Engineers International Finance Corporation Intra-State Transmission System Independent Power Producer International Organization for Standardization Inter State Transmission System Japan International Co-operation Agency Jaigad Power Transmission Company Limited Joint Venture Kilo Volt State Load Dispatch Centre Life Extension Scheme Life Insurance Corporation of India Loop In Loop Out Municipal Corporation of Greater Mumbai Maharashtra Eastern Grid Power Transmission Company Limited Minutes of Meeting Ministry of Power Maharashtra State Electricity Board Maharashtra State Electricity Transmission Company Limited Maharashtra State Load Dispatch Centre Mega Volt Amperes Multi Year Tariff Operation & Maintenance Optic Power Ground Wire Profit After Tax MERC, Mumbai Page 9 of 119

10 Case No. 137 of 2011 Order - MSETCL business plan for to PFC PGCIL PMU POC QAP QMS R&M REC RInfra-T RoE ROW RTC SAS SBI SCADA SERC SGA SLDC SMS SoP SPTCL STU SWOT TPC-T TSU TTSC TVS UBI VVI WRPC XLPE Power Finance Corporation Ltd. Power Grid Corporation of India Ltd. Phasor Measuring Unit Point of Connection Quality Assurance Procedure Quality Management System Repair & Maintenance Rural Electrification Corporation Ltd. Reliance Infrastructure Limited Transmission business Return on Equity Right of Way Regional Training Centre Station Automation Systems State Bank of India Supervisory Control and Data Acquisition State Electricity Regulatory Commission Small Group Activity State Load Despatch Centre Sub-station Monitoring System Standard of Performance Sinnar Power Transmission Company Limited State Transmission Utility Strength Weakness Opportunity and Threat Tata Power Company Limited Transmission Business Transmission System Users Total Transmission System Cost Technical Validation Session Union Bank of India Voltage Variation Index Western Regional Power Committee Cross Linked Polyethylene MERC, Mumbai Page 10 of 119

11 Case No. 137 of 2011 Order - MSETCL business plan for to BACKGROUND AND BRIEF HISTORY 1.1. Background A Petition has been filed by Maharashtra State Electricity Transmission Company Limited (hereafter referred as MSETCL ), for approval of the MYT business plan for the second control period from to , under Sections 61 to Section 64 of the Electricity Act, 2003 read with Regulations 7 and 57 of the MERC (MYT) Regulations, Consequent to the implementation of power sector reforms in the state of Maharashtra, where under, the activities of generation, transmission, distribution and retail supply of electricity carried out by erstwhile Maharashtra State Electricity Board (MSEB), has been restructured and transferred to the three successor corporate entities. The function of electricity transmission and load despatch has been vested with MSETCL MSETCL is in the business of transmission of electricity within the state of Maharashtra, and has also been notified as the State Transmission Utility (STU) as per Section 39 of the EA, Evolution of Regulatory regime for transmission pricing The Commission, in exercise of the powers conferred upon it by the EA, 2003, notified the Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005, on 26 August, Subsequently, the Commission, considering the requests made by the utilities, vide Order dated 20 December, 2005 in the matter of applicability of Multi Year Tariff Framework granted a special dispensation for all the utilities in Maharashtra from implementation of MYT framework for The Commission, in the said Order, stated that the Commission would determine the Tariff under the Multi Year Tariff framework with effect from 1 April, 2007 instead of 1 April, 2006 as stipulated in MERC (Terms and Conditions of Tariff) Regulations, 2005 and accordingly, the first control period for MYT framework shall be the three financial years starting from 1 April, 2007 to 31 March, The Commission, at the start of the first control period issued MYT Order for each utility in the state, approving their ARR for each MERC, Mumbai Page 11 of 119

12 Case No. 137 of 2011 Order - MSETCL business plan for to year during the control period. The Commission subsequently issued the Annual Performance Review (APR) Orders for each utility in each year of the control period which included Truing up of the ARR of the past year or (n-1) th year, provisional Truing up of the ARR of current year or n th year and determination of revised ARR/ Tariff for the ensuing year or (n+1) th year. The transmission utilities for which such Orders were issued include MSETCL, transmission business of Tata Power Company Ltd (TPC-T) and transmission business of Reliance Infrastructure Ltd (RInfra-T) In addition, the principles of transmission pricing framework in the state for the first control period were stipulated vide the Commission s Order dated 27 June, 2006 in Case No. 58 of Accordingly, the Intra-State transmission Tariffs were determined for the respective years on the basis of Total Transmission System Cost (TTSC), which were derived by pooling the ARRs of each transmission utility of the state. The pooled cost for Intra-State Transmission System (InSTS) within Maharashtra, i.e., TTSC has been recovered from the transmission system users in the state, which mainly constituted the DISCOMs of the state. The Commission has issued Orders determining transmission Tariff from time to time on an annual basis MERC (MYT) Regulations, The Commission, in exercise of the powers conferred upon by the EA, 2003, notified the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, (hereinafter referred as the MERC (MYT) Regulations, 2011) on 4 February, These Regulations are applicable for the second control period starting from to The MERC (MYT) Regulations, 2011 were amended vide notification dated 21 October, 2011 called Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations, As per the said Amendment, the Commission has specified that in case an exemption has been granted under Regulation 4.1 of MERC (MYT) Regulations, 2011, then the generating company or transmission licensee or distribution licensee concerned shall file annual Petitions for approval of ARR and Tariff during the period of exemption, in accordance with the MERC (Terms and Conditions of MERC, Mumbai Page 12 of 119

13 Case No. 137 of 2011 Order - MSETCL business plan for to Tariff) Regulations, MSETCL had submitted its Petition (Case No. 62 of 2011), seeking exemption from determination of Tariff and applicability of the MERC (MYT) Regulations, 2011 for a period of five years. The Commission issued an Order dated 3 November, 2011, in the said matter exempting determination of Tariff of MSETCL under Multi Year Tariff Framework till 31 March, 2013 (i.e., for a period of 2 years) by invoking the proviso of Regulation 4.1 of MERC (MYT) Regulations, The Commission granted the exemption on the grounds that, by the time MSETCL files its MYT Petition based on the Order on business plan, in all probabilities entire would get over. Hence, determination of Tariff for under the (MYT) Regulations, 2011 may not be possible In accordance with the Order dated 3 November, 2011 in Case No. 62 of 2011 and MERC (MYT) (First Amendment) Regulations, 2011 MSETCL submitted its MYT business plan Petition. For and , provisions of MERC (Terms and Conditions of Tariff) Regulations, 2005 are applicable whereas for to provisions of MERC (MYT) Regulations, 2011 are applicable Petition for business plan approval, admission of the business plan Petition and public process Pursuant to notification of MERC (MYT) Regulations, 2011 on 4 February 2011, the Commission vide letter dated 25 March, 2011 directed all licensees and Generating Companies to submit their MYT business plan and MYT Petition for the Second Control Period from to , latest by 31 March, MSETCL submitted its MYT business plan Petition for the second control period under affidavit on 23 September, The Commission held the first Technical Validation Session (TVS) on the MYT business plan Petition on 3 November, 2011 at the office of the Commission. During the TVS, the Commission specified the outline on the philosophy of preparation of business plan. The Commission opined that while preparing its business plan MSETCL should take into account the following: a) On the map of India, the generating stations should be mapped that are (i) MERC, Mumbai Page 13 of 119

14 Case No. 137 of 2011 Order - MSETCL business plan for to existing (ii) under construction and (iii) under planning to ascertain the quantum of electricity that would be generated in the near future. This should be taken as an input for planning transmission capacity for evacuation of power as well as for open access. Strengthening of Transmission Corridors connecting Maharashtra to power producing states such as Chattisgarh, coastal Gujarat, etc. should be factored into the business plan for facilitating open access; b) The load centres should also be mapped by mapping major load developing areas such as metropolitan regions, municipal corporations, Delhi-Mumbai Industrial Corridor and major industrial areas; c) The technological advancements in the field of transmission should be incorporated by referring to IEEE as well as other international papers; d) Ring main system for major developing cities like Pune, Nasik, and Aurangabad etc. should be included in the business plan; and e) CPPs such as Railways who are planning their own captive power plants may need to evacuate power from the respective plants. These considerations should be included in the business plan The Commission conducted the second TVS on 8 December, 2011, at it s office. Various observations made by the Commission in the context of MSETCL s business plan are summarised as below: a) MSETCL, while drafting the revised business plan, should consider the implications of Ministry of Power, GoI Circular dated 30 November This Circular was on operationalisation of open access in the power sector under which all 1 MW and above consumers are deemed open access consumers and can procure power from the open market; b) MSETCL should include the transmission loss reduction trajectory in the revised business plan; c) MSETCL should include efficiency gains resulting out of the capital expenditure planned as per the business plan; MERC, Mumbai Page 14 of 119

15 Case No. 137 of 2011 Order - MSETCL business plan for to d) MSETCL should include avenues to increase income from other sources in its business plan; e) MSETCL should include present and upcoming substations and transmission lines of PGCIL in the business plan; f) MSETCL to list out transmission bottlenecks and quality of power supply problems year-wise and state the measures taken in the subsequent years to rectify / improve the same; g) MSETCL should include the necessity for issuance of Guidelines for competitive bidding of transmission projects in Maharashtra for participation of Private Sector by GoM similar to the guidelines issued by CERC; and h) MSETCL to include the measures being taken to strengthen STU and SLDC with competitive and dedicated technical staff. If required, outside talent may be recruited The Commission observed that few of the EHV substations of MSETCL were unutilised/ underutilised due to non-laying of outgoing feeders by MSEDCL. Therefore, during the second TVS, MSETCL was directed to mark copies of the correspondences with MSEDCL to the Commission in the matter of about 250 feeders not laid by the MSEDCL across Maharashtra from these underutilised substations. Further, MSETCL was directed to submit revised business plan by 31 December, The third TVS in this matter was held by the Commission on 19 January, 2012 at the office of the Commission. MSETCL made a brief presentation of its revised business plan before the Commission. However, MSETCL did not submit its revised business plan Petition to the Commission Subsequently, the Commission vide Order dated 18 May, 2012 in Case No.169 of 2011 in the matter of MSETCL Petition for Truing-up of and approval of Aggregate Revenue Requirement (ARR) for & , gave directions regarding submission of business plan. The relevant portion of the Order is reproduced as below: 5.2. Submission of Business Plan MERC, Mumbai Page 15 of 119

16 Case No. 137 of 2011 Order - MSETCL business plan for to MSETCL had submitted the business plan Petition as per the provisions of MERC (MYT) Regulations, 2011 on 23rd September 2011, for which three technical validation sessions (TVS) were conducted by the Commission. MSETCL after the TVS was required to submit a revised business plan, which is still awaited The Commission directs MSETCL to submit its revised business plan Petition immediately, without any delay and with a maximum time limit of 30 days from the issue of this Order In this regard, MSETCL vide letter dated 18 June, 2012 requested the Commission to grant additional time to submit the revised business plan Petition up to 30 June, Thereafter, MSETCL submitted the revised Petition on 29 June, The Commission raised three sets of data gaps on MSETCL s revised Petition and forwarded the same to MSETCL on 16 July, 2012 and 17 July, MSETCL provided its reply for first and second set of data gaps on 18 July, It also submitted the reply to the third set of data gaps on 27 July, Meanwhile, the Commission vide its letter dated 19 July, 2012 directed MSETCL to present its MYT business plan before the Standing Committee. Thereafter, the business plan was presented by MSETCL in the 9 th meeting of the Standing Committee chaired by Director (Operations), MSETCL and attended by members from STU, MSETCL, RInfra-T, TPC-T, and Power Grid Corporation of India Ltd. (PGCIL) The Commission also directed MSETCL that its revised business plan should be consistent with the State Transmission Utility (STU) s five year plan and the Standing Committee must give consent for the same. The revised business plan of MSETCL was taken up before the Standing Committee on 3 August, Further, concurrence was given by the Standing Committee in this meeting on acceptability of philosophy of the business plan and also suggested onward submission to the Commission. The minutes of the meeting (MoM) of this meeting was also enclosed with the business plan Petition marked as Annexure-2 to the Petition. MSETCL submitted a revised business plan Petition on 31 August, Further, new data gaps were sent to MSETCL on the revised Petition. MERC, Mumbai Page 16 of 119

17 Case No. 137 of 2011 Order - MSETCL business plan for to The fourth TVS on the revised MYT business plan Petition was held on 21 September, 2012 at the office of the Commission. Post the comments of the Commission in TVS, MSETCL submitted the revised MYT business plan Petition on 28 September, The list of individuals, who participated in the 4 th TVS held, is provided at Appendix MSETCL vide revised MYT business plan Petition, made the following prayers: a) Admit this Petition; b) Grant an expeditious hearing of this Petition; c) Approve the Business Plan and the Aggregate Revenue Requirement submitted by MSETCL for the period to ; d) Approve the reimbursement of Income Tax Liability for to separately as contained in the Petition; e) Approve the Principles and methodology proposed by MSETCL; f) Approve the deviations from the norms prescribed in MYT regulations 2011, and provisions thereof, as sought in this Petition, during the period of to ; g) Provide the workable excel model used by the Hon ble Commission for approval of the above Business Plan of MSETCL; h) Provide a recovery mechanism for recovery of the Aggregate Revenue Requirement for the respective years; i) Condone any shortcomings/ deficiencies and allow MSETCL to submit additional information/ data at a later stage as may be required The Commission vide letter no. MERC/Tech-II/Case No. 137 of 2011/01568 dated 15 October, 2012 admitted the Petition. In accordance with Section 64 of the EA, 2003, the Commission directed MSETCL to publish its MYT business plan Petition in the prescribed abridged form and manner, to ensure adequate public participation. The Commission also directed MSETCL to reply expeditiously to all the MERC, Mumbai Page 17 of 119

18 Case No. 137 of 2011 Order - MSETCL business plan for to suggestions and objections received from stakeholders on its Petition MSETCL issued public notice in newspapers inviting suggestions and objections from stakeholders. The public notice was published on 17 October, 2012 in two English newspapers DNA and Times of India; and in two Marathi newspapers Lokmat and Sakal on 18 October, Copies of MSETCL s Petition and its executive summary (both in English and Marathi) were made available for inspection/ purchase to interested stakeholders at MSETCL s offices and on MSETCL s website ( Copy of the public notice and executive summary of the Petition were also available on the website of the Commission ( in a downloadable format The public notice specified that the replies by MSETCL need to be provided within three days from the date of receipt of suggestions and objections, but not later than 8 November, 2012, for all the suggestions and objections received till 6 November, The stakeholders were asked to submit rejoinders either during the public hearing or latest by 12 November, The Commission received written suggestions/ objections against the public notice and the MSETCL business plan Petition. The Commission held a public hearing on 9 November, 2012 at the Commission s office at 13th floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai The list of objectors, who participated in the public hearing, is provided in Appendix The Commission has ensured that the due process contemplated under the law to ensure transparency and public participation was followed meticulously at every stage. Adequate opportunities were given to all the persons concerned to submit their say in the matter Organisation of the Order This Order is organised in the following sections: Section 1 of the Order provides a brief history and the quasi-judicial Regulatory process undertaken by the Commission. For the sake of convenience, a list of abbreviations with their expanded forms has been included. Section 2 of the Order provides description of suggestions and objections received, response of MSETCL and the Commission s ruling on the same. MERC, Mumbai Page 18 of 119

19 Case No. 137 of 2011 Order - MSETCL business plan for to Section 3 of the Order summarises the salient features of the business plan Petition filed by MSETCL. Section 4 discusses the business plan components, key issues and the Commission s ruling on the same. Section 5 of the Order details the views of the Commission on the projection of ARR components as submitted by MSETCL for the purpose of business plan approval. Section 6 of the Order approves MSETCL s performance targets for the second control period. Section 7 of the Order provides necessary directions of the Commission to MSETCL. MERC, Mumbai Page 19 of 119

20 Case No. 137 of 2011 Order - MSETCL business plan for to OBJECTIONS RECEIVED, MSETCL S RESPONSE AND COMMISSION S RULING 2.1. Clarity regarding MSEB transfer scheme Suggestion/ Objection Shri N. Ponrathnam submitted that as per the business plan Petition filed by MSETCL, the activities of generation, transmission, distribution and retail supply of electricity carried out by the erstwhile MSEB have been restructured and transferred to the 3 successor companies consequent to the implementation of power sector reforms in Maharashtra. The function of electricity transmission and load despatch has been vested with MSETCL. This transfer scheme is still ongoing and MSETCL has not notified the stipulated period for finality of this scheme. Shri Ponrathnam submitted that the creation of MSEB Holding Company Ltd. is in contravention to the Section 131(2) of the EA, He further asked MSETCL to submit the functions/ activities of MSEB Holding Company Ltd.. MSETCL s reply MSETCL submitted that the objection raised is not within the scope of the current Petition. Commission s Ruling In the Order dated 18 May, 2012 in Case No. 169 of 2012 on the objection of Akhil Bharatiya Grahak Panchayat the Commission had exhorted MSETCL to impress upon the Government of Maharashtra to expedite the finalisation of the transfer scheme in the larger interest of the electricity sector in Maharashtra. The Commission reiterates that MSETCL should take up this matter. Apart from this, the details of the provisional transfer scheme may be made available on specific requirement basis to the objector 2.2. Long term transmission planning Suggestion/ Objection Shri N Ponrathnam submitted that MSETCL takes care of transmission of electricity MERC, Mumbai Page 20 of 119

21 Case No. 137 of 2011 Order - MSETCL business plan for to which is very vital for the development of the power sector in the state and the country. The development/ augmentation of transmission system is capital intensive and not commercial in nature. The development of transmission system has to be gradual and its effect should be seen in the distant future. Accordingly planning for only next five years is not correct. The vision of transmission network should be for at least next 100 years. MSETCL s reply MSETCL submitted that the business plan Petition for the second multi-year control period of to has been filed in compliance with the directives of the Commission. The Petition contains capital investment plan which provides a roadmap for planning and implementation of proposed investments. MSETCL also submitted that identification of various generation sources and expected demand for the next 100 years is a tedious task; hence transmission planning for the evacuation of such highly unpredictable demand and generation is difficult to plan. Commission s Ruling Presently the intra-state transmission planning in the state of Maharashtra is done by the notified State Transmission Utility (STU) in accordance with the Section 39 of EA, 2003, i.e., MSETCL. In its function as an STU, it is currently publishing a 5 year transmission plan for Maharashtra in compliance with the Regulation 8 of the MERC (Transmission Open Access) Regulations, 2005 read with Regulation 8 of the MERC (State Grid Code) Regulations, While a 5 year transmission plan has been stipulated by the above mentioned Regulations, the Commission would like to emphasise that since these schemes are capital intensive and have long gestation periods, a longer term foresight needs to be considered with appropriate checks and balances. The planning should not only be a futuristic but also centric to consumer benefits. For example, while erecting transmission towers possibilities and cost economics should be measured for provisioning for higher voltage conductor stringing, if required in the future However, for the present proceeding the transmission licensee has to confine its transmission plan and network expansion plan only up to , in MERC, Mumbai Page 21 of 119

22 Case No. 137 of 2011 Order - MSETCL business plan for to accordance with Regulation 57.1 of the MERC (MYT) Regulations, Operational cost Suggestion/ Objection Shri N Ponrathnam submitted that it is mandatory for MSETCL to operate on commercial principles complying with the Section 61 (b) of the EA, He argued that the cost of operation of MSETCL should be as economical as possible, compared to the cost for transmission in other states. MSETCL s reply MSETCL submitted that it maintains the cost of operation as economical as possible so as not to burden the customers with high Tariff. Commission s Ruling The Commission scrutinizes the ARR Petitions of the licensees for prudency of the expenses and costs. The Commission approves only the appropriate costs in this process for recovery from the consumers. Further, going forward expenses such as the O&M expenses are approved based on norms specified by the MERC (MYT) Regulations, However, the Commission exhorts that MSETCL may further endeavour to bring in efficiency in expenses and thereby may share the gains arising out of this efficiency in accordance with Regulation 14 of MERC (MYT) Regulations, Capital expenditure and capitalisation Suggestion/ Objection Shri N. Ponrathnam submitted that the congestion of electricity in transmission network is one of the causes for load shedding in the state, the same should be eliminated. He submitted that MSETCL should propose the capital expenditure for adequate augmentation forecasted for at least 25 years. Transmission loss is one of the parameters which indicate the performance of transmission system. Hence, adequate augmentation of transmission capacity should be such that transmission loss reduces with time. He further submitted that both the state and the Central Government are responsible for providing electricity to the consumers as per the MERC, Mumbai Page 22 of 119

23 Case No. 137 of 2011 Order - MSETCL business plan for to Constitution of the country. Therefore, state and Central Government should fund the huge capital expenditures of transmission licensee, instead of extracting it from the consumers. He further submitted that transmission line technology is not very complex and there hasn t been drastic change in the technology till date. It is a routine that the increase in demand compels to increase the system voltage. The technology up-gradation in communication and automation of control system is used to enhance the performance of the vintage system. He added that such information technology has been the black box which changes shapes very frequently; hence in depth indigenous knowledge is required Shri Ravindra Chavan, Hon ble Member of Legislative Assembly submitted that the capitalization of Rs crore proposed by MSETCL for to was too high and MSETCL has not submitted any rational for increasing capitalization. No proposed project was discussed in detail in the business plan Petition. It was also not clear as to which projects were approved by the Commission and which were under consideration before the Commission. He further added that MSETCL has not submitted the deviation in actual capitalization of Therefore, MSETCL cannot hurry for the determination of Multi Year Tariff for transmission. He also submitted that MSETCL has made a statement that cost benefit analysis of its proposed capex schemes would be submitted at the time of approval. However, such cost benefit analysis should be considered first and it must be made available to public Urja Prabhodan Kendra submitted that capital expenditure of Rs crore for 2012-l3 and subsequent years appeared high as compared to Rs crore for From the business plan Petition the reason for increase in capital expenditure of Rs crore (Rs crore Rs. 2411crore) was not clear. The addition of sub-station bays during is less than that of and the number of substations is same. However, additional cost of substation was shown as about Rs crore. Urja Prabhodan Kendra asked MSETCL to clarify on this. It also submitted that targets for capitalisation for and subsequent years appeared on higher side as compared to capitalisation for It asked MSETCL to clarify this in terms of works being planned to be completed and commissioned. MERC, Mumbai Page 23 of 119

24 Case No. 137 of 2011 Order - MSETCL business plan for to During the public hearing Dr. Ashok Pendse of TBIA pointed out that MSETCL s projected capital expenditure is based on underlying assumption that transmission capacity would increase from MW to MW in next 5 years. He stressed that the assumption seems far fetched. He further asked whether MSETCL has considered the cost of replacement of old equipments and also the cost incurred by private generators who set up their own network for evacuation of power in its business plan. MSETCL s reply MSETCL submitted that the detailed scheme wise capital expenditure (capex) plan and capitalisation plan is provided in sheet 4.4 of the excel sheet along with the Petition submitted to the Commission. It indicated the scheme wise capital investment planned and capitalisation proposed for the business plan period. MSETCL added that as per the requirement of the business plan, the capex details were submitted for the second multi-year control period from to MSETCL submitted that in regard to the cost benefit analysis of proposed capex schemes, it is working as per the guidelines laid down by the Commission MSETCL submitted that the proposed plan for capex has been prepared based on the inputs received from the STU. The STU has prepared the plan for the entire state, clearly identifying the schemes to be undertaken by each of the Transmission Licensees operating in the state, including MSETCL. MSETCL further submitted that as directed by the Commission vide its letter dated 19 July, 2012, to present the business plan to the Standing Committee, the capital expenditure plan was presented in the 9 th meeting of the Standing Committee chaired by Director (Operations), MSETCL and attended by members from STU, MSETCL, RInfra-T, TPC-T and PGCIL In regard to the deviation in actual capitalization of , MSETCL submitted that the relevant details have been provided to the Commission in Annexure 4 d of the business plan Petition as a part of reply to data gaps. Commission s Ruling In regard to the concern of the objector for a longer term capital expenditure plan up MERC, Mumbai Page 24 of 119

25 Case No. 137 of 2011 Order - MSETCL business plan for to to 25 years, the Commission has already dealt with this issue in Section 5.3 of this Order. Additionally, the capex schemes are taken up as per the 5 year STU transmission plan and approval by the Commission of the DPR schemes with the capital cost above Rs 10 crore, is obtained before its implementation. The capital cost of the above mentioned schemes are undertaken in accordance with Regulation 27 of MERC (MYT) Regulations, Competition Suggestion/ Objection Shri N Ponrathnam submitted that MSETCL is enjoying a monopoly with no competition. Hence, MSETCL has no risk of transmission system being stranded Shri Ravindra Chavan submitted that the Commission should encourage competition in compliance with the proviso of Section 61(c) of EA, 2003 and grant another transmission license in the area of MSETCL. It is necessary so that MSETCL faces the heat of competition to remove its inefficiencies, due to which the Tariff is increasing. Shri Ravindra Chavan requested the Commission to grant new transmission license in Dombivli. MSETCL s reply MSETCL submitted that that there are various transmission licensees forming part of the InSTS system of Maharashtra. It includes Tata Power Company Limited (TPC-T), Reliance Infrastructure Limited (RInfra-T), Jaigad Power Transco Limited (JPTL), Adani Power Maharashtra Limited- Transmission (APML-T), Maharashtra Eastern Grid Power Transmission Company Limited (MEGPTCL), Sinnar Power Transmission Company Limited (SPTCL) and Amravati Power Transmission Company Limited (APTCL). MSETCL submitted that it does not have the monopoly position in the transmission market and it is facing tough competition from its various competitors as mentioned In regards granting another transmission license, MSETCL submitted that no response is sought from it. Commission s Ruling The Commission opines that development and augmentation of InSTS network is MERC, Mumbai Page 25 of 119

26 Case No. 137 of 2011 Order - MSETCL business plan for to undertaken with coordination among the InSTS members such as MSETCL, RInfra- T, TPC-T, APML-T, SPTCL, APTCL, JPTL and PGCIL. This ensures that appropriate augmentation of network comes up in the required load centres through coordination among these constituents. However, competitive bidding for transmission services in Maharashtra is a possibility based on the Tariff based competitive bidding guidelines for transmission service as issued by the Ministry of Power (MoP) Management risks Suggestion/ Objection Shri N. Ponrathnam submitted that in the business plan Petition MSETCL has indicated man and material management as risks, these are unwarranted. MSETCL s reply MSETCL requested the objector to rephrase the objection for the understanding of MSETCL. Commission s Ruling The Commission views that a business plan requires a licensee to assess the risks and devise strategies to mitigate the same. The various risks and risk mitigation strategies suggested by MSETCL and Commission s view on the same is discussed in section 4.2 of this Order Incomplete Regulatory procedure Suggestion/ Objection Shri Ravindra Chavan submitted that as mentioned in the paragraph 11 of the public notice a copy of MSETCL s business plan Petition along with affidavit was not uploaded on the website of MSETCL and the Commission. A copy of the Petition was provided to the representatives of the applicant at the office of Chief Engineer instead of an original Petition. He also submitted that even the offices of Chief Engineer were not aware about such important Petition of MSETCL and it took two days for them to provide. Therefore, he strongly objected that as procedure was not followed, the public hearing may be postponed so that more people can file their objections properly. MERC, Mumbai Page 26 of 119

27 Case No. 137 of 2011 Order - MSETCL business plan for to Shri Ravindra Chavan submitted that the public hearing must be conducted for every issue due to which Tariff may increase and burden is likely to be passed on to the consumers During the public hearing Shri N. Ponrathnam suggested that MSETCL should specify the working hours of its divisional offices so that general public can access the copy of Petition from the divisional offices within the specified time. MSETCL s reply MSETCL submitted that the business plan Petition was available on its website since 17 October, 2012 and link for the same is MSETCL also submitted the copy of an sent to the office of Chief Engineers on 16 October, 2012 in regard to submission of its business plan Petition to the Commission With regard to conducting public hearing on every issue, MSETCL submitted that no response was sought by the objector from MSETCL Commission s Ruling Regulation 90 of MERC (Conduct of Business) Regulations, 2004 specifies for publication of a public notice that informs about the filing of the Petition and public hearing to be held on the same through newspapers which have wide circulation in the area of operation of the Petitioner. The Commission views that the said procedure was followed by the Petitioner. As regards the difficulties experienced by the objector in accessing the Petition the Commission views that henceforth MSETCL should include the complete website address for accessing the Petition on its website in the public notice published in the newspaper, so that one can directly access the Petition instead of searching for the same on its website. As regards, availability and awareness of the Petition MSETCL should ensure that copies of the Petition are available at its divisional offices. The staffs at the divisional offices are also required to be made aware of the filed Petition before publishing the public notice in the newspapers. However, the suggestion which arose in the public hearing to specify designated officers responsible for obtaining the Petition in the respective offices may be included from the next proceedings. MSETCL should also specify the working hours of its divisional offices prominently at the divisional offices and MERC, Mumbai Page 27 of 119

28 Case No. 137 of 2011 Order - MSETCL business plan for to on its website Regulatory fees and charges Suggestion/ Objection Shri Ravindra Chavan submitted that the revised business plan Petition of MSETCL, submitted on 27 October, 2012, was not accompanied by appropriate fees according to MERC (Fees and Charges) Regulations, However, MSETCL had given the reference of fees being paid in its earlier business plan Petition. MSETCL s reply MSETCL submitted that the appropriate fees according to MERC (Fees and Charges) Regulations, 2004 have been deposited with the Commission. Commission s Ruling The Commission scrutinises the Petition/ Application for compliance with the MERC (Fees and Charges) Regulations, 2004 as soon as the Petition is filed. In case of any deficiency, the same is communicated to the Petitioner for rectification and resubmission. The Commission has also undertaken similar scrutiny for the present Petition and found it to be appropriate as per MERC (Fees and Charges) Regulations, Outsourcing of installation work Suggestion/ Objection Shri Ravindra Chavan objected the dependency of MSETCL on private companies/ contractors/ agents for installation of transmission infrastructure. He submitted that MSETCL should have been efficient to do its work through its own employees. The Commission should have granted licence to a company that does its work on its own and that does not depend on someone else. He added that specific contractors, companies and agents are working in respective areas of Maharashtra which assure existence of corruption and the competitive bidding is myth. When MSETCL spends crores of rupees on its skilled and qualified employees, there is no need of private companies/ contractors/ agents. MERC, Mumbai Page 28 of 119